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It’s no secret that a lack of sleep along with high levels of stress can have an adverse effect on your life, whether you’re trying to function at work or effectively raise your children.

But many don’t know that living a lifestyle that includes little sleep and/or high levels of stress can also impact your financial decisions and ability to save money.

Of course, making bad financial decisions can create sleepless nights and a cycle of stress that will guarantee you never find peace of mind. So how can you ensure you don’t find yourself tangled in this web? Learn more about the connection between sleep, stress and your money.

Negative Effects of Stress on Financial Decision-Making Skills

In 2009, psychologists Anthony J. Porcelli and Mauricio R. Delgado of Rutgers University conducted a study revealing that one of the many negative effects of stress is a lack of good financial judgment.

Specifically, they found that stressful situations can cause people who are otherwise responsible with their money to have a greater willingness to take risks while making financial decisions.

To make this determination, the psychologists had a group of volunteers choose between various financial gambles after being asked to immerse their hand for a period of time in either ice-cold or room-temperature water — the former to induce stress and the latter to indicate no stress.

Porcelli and Delgado found that the results of their study were consistent with a phenomenon known as reflection effect, which says that the average person tends to show increased conservatism when choosing between potentially positive outcomes. But when two gambles are present, the likelihood of making a risky decision increases.

The study suggested that the addition of stress further exaggerates the reflection effect. So individuals faced with two positive outcomes were even more conservative if under stress, while those who were faced with two gambles made even riskier choices that could result in huge financial loss.

The researchers explained that stressful situations prompt us to fall back on automatic, lower-level thought processes, making us “less able to utilize more rational and deliberative thinking to assist in making decisions.”

So, if by chance a person is under stress from losing a job and has to choose between making a car payment and investing in a get-rich-quick scheme, the person may choose the scheme/scam in hopes of doubling or tripling money for the family only to lose it all in the process.

Unexpected Ways Lack of Sleep Impacts Your Money

Lack of sleep, similar to heightened stress, can impact how a person manages their money, according to a study conducted at Duke University last year.

The researchers analyzed sleep deprivation effects on economic decisions by asking volunteers to perform several financial tasks in the morning, first after getting a regular night of sleep and then after a night with very little sleep.

Afterward, the researchers used MRI scans to determine the effect the lack of sleep had on brain activity.

The MRIs showed that insomnia or simple sleep deprivation prompted increased activity in portions of the brain that anticipate optimistic outcomes. At the same time, decreased activity was found in regions that anticipated negative outcomes, meaning that a person suffering from sleep deprivation may temporarily believe that a risky decision isn’t very risky.

Other studies have found similar effects of a lack of sleep on financial decisions, along with other dangers such as a greater likelihood of getting into a car accident or even suffering from health issues such as heart disease or strokes.

Improve Your Life to Improve Your Finances

In our fast-paced society, it’s not always easy to reduce your stress levels and ensure that you acquire sufficient sleep every night. Even under difficult circumstances, however, there are ways to improve your lifestyle choices:

Reducing Your Stress

Visualize relaxation: A great way to reduce your stress is to sit in a quiet place, close your eyes and picture yourself in a relaxing scenario that may look opposite to your current circumstance. Picture yourself on the beach — or anywhere that makes you happy — to give your mind a much-need break from the stress.

Learn to breathe: Of course, everyone knows how to breathe, but learning to breathe deeply with the intention of relaxing yourself is quite different. Studies have shown for years that breathing (as you would in meditating or yoga) reduces stress significantly.

Exercise: Whether you’re going for a brisk walk outdoors or working out with an aerobics DVD, exercising is important in reducing your stress.

Listen to music: Spending time listening to your favorite songs can work wonders in lifting your spirits. You can put on your headphones or blast the music throughout the house, which can help you forget your worries for a while.

Enjoy life as-is: Stressful situations can make us think only about what we’re lacking without looking at what we already have. Take a look around and express gratitude for the good in your life (kids, spouse, family and friends, etc.) to help relieve stresses in your life.

Improving Sleep Habits

Read before bed: Reading is a relaxing form of activity that requires active engagement of your cognitive skills. Because you’re working your brain, you’re more likely to grow tired enough to sleep soundly through the night.

Sleep in quiet and darkness: If you’re accustomed to sleeping with the TV or computer on, it’s time to turn it all off and sleep in total darkness. Even taking the extra step of blocking the light streaming in under your door could stop you from waking up.

Increase thiamine intake: Thiamine, which is found in certain meats, can impact sleep patterns if you don’t have enough in your system. Experts recommend eating thiamine-rich foods like pork and even sunflower seeds to regulate your sleep.

Reduce your stress: Hopefully you’ve taken steps to resolve stress issues in the previous section. If you have less on your mind to worry about, you are able to sleep more peacefully.

Lowering your stress and improving your sleep habits are important in functioning properly in your everyday life. But these steps could mean even more when managing your money. So avoid unnecessary financial losses by ensuring you relax and get the proper amount of sleep each night.